Northland Power Inc.

TSX : NPI
TSX : NPI.DB.A
TSX : NPI.PR.A
TSX : NPI.PR.C
TSX : NPI.DB.B


Northland Power Inc.

May 12, 2014 19:30 ET

Northland Power Delivers 87% Increase in Free Cash Flow

Company achieves strong first quarter results while continuing to expand portfolio of operating assets

TORONTO, ONTARIO--(Marketwired - May 12, 2014) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OR ITS POSSESSIONS. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Northland Power Inc. ("Northland" or "the Company") (TSX:NPI)(TSX:NPI.PR.A)(TSX:NPI.PR.C)(TSX:NPI.DB.A)(TSX:NPI.DB.B)

First Quarter Highlights:

  • 87% increase in quarterly adjusted EBITDA from 2013;
  • 87% increase in quarterly free cash flow from 2013;
  • Began commercial operations on two additional 10 MW ground-mounted solar projects, bringing the total solar operations to 80 MW;
  • Decreased quarterly payout ratio to 49% of free cash flow (63% excluding the effect of dividends reinvested through the Dividend Reinvestment Plan), compared to 75% in the first quarter of 2013;
  • Successfully completed offering and placement of $286.3 million to be used to fund Project Gemini; and
  • Announced the addition of Sean Durfy, former CEO of WestJet, to its executive team as President and Chief Development Officer.

Northland reported its financial results today for the quarter ended March 31, 2014.

"2014 is off to a very strong start," said John Brace, Chief Executive Officer. "Our performance this quarter again demonstrates our proficiency in delivering robust financial results while achieving substantial growth targets. Our adjusted EBITDA and free cash flow have grown by 87% over last year following the commissioning of North Battleford and the first two phases of our ground-mounted solar facilities. Our portfolio of long-term contracted renewable energy assets continues to expand with the completion of two additional ground-mounted solar projects and the McLean's Mountain wind project. As we move forward on Gemini, our biggest project yet, the addition of Sean Durfy to our executive team positions us well for the significant growth ahead. We remain focused on delivering value to our shareholders now and into the future through a business strategy that is both measured and progressive."

Subsequent Events

McLean's Mountain Achieves Commercial Operations

On May 1, 2014, Northland's 60 MW (30 MW net interest) McLean's Mountain wind project located on Manitoulin Island, Ontario, declared commercial operations. The project was completed on time and on budget and has a 20-year power purchase agreement (PPA) with the Ontario Power Authority (OPA) under Ontario's renewable energy Feed-In-Tariff Program.

$240 million Solar Financing

On April 24, 2013, Northland completed $240 million of non-recourse project financing for the five remaining ground-mounted solar projects ("Cluster 4") with a syndicate of banks based on an 18-year amortization period.

Sale of Wood Chipping Facility

Northland sold its wood chipping facility in British Columbia for $0.8 million on April 23, 2014.

Gemini

Project Gemini, the 600 MW offshore wind project in the North Sea, with a estimated capital cost of EUR2.8 billion continued to make significant progress; in April 2014, Northland received final board approval to proceed with its equity investment, sub-debt investment, its share purchase for its 60% interest in the project, and for certain early capital expenditures for longer lead time items on the project. As of the date hereof, $167 million has been funded by Northland for the share purchase and advancement of capital expenditures and EUR24 million in letters of credit have been provided that will be returned upon the project reaching financial close. All amounts funded or expected to be funded for Project Gemini will be sourced from previous capital raises, the term facility and cash on hand.

The project is also nearing completion of its approximately EUR2 billion non-recourse project financing with a consortium of creditors including major international lenders, export credit and other governmental agencies, and subordinated debt. Management expects full financial close to be finalized before the end of May 2014.

Northland entered into foreign exchange contracts with several members of its corporate banking syndicate to effectively fix the foreign exchange conversion rate at an average of $1.65 CAD:EURO on a portion of its projected EURO-denominated cash inflows from Project Gemini.

Short Form Prospectus

On April 21, 2014, Northland renewed its existing short form base shelf prospectus that was set to expire at the end of April. This will enable Northland to offer an aggregate of up to $500 million of securities to assist in maintaining financial flexibility and providing an efficient access to the Canadian capital markets when capital is required.

Summary of Financial Results

Three Months Ended March 31
2014 2013
FINANCIAL (in thousands of dollars, except per share and energy unit amounts)
Sales 229,424 106,134
Gross profit 133,438 67,984
Adjusted EBITDA(1) 102,097 54,565
Operating income 84,009 37,370
Net income 28,576 23,617
Free cash flow(1) 56,752
30,418
Cash dividends paid to Common and Class A Shareholders 27,617 22,682
Total dividends declared to Common and Class A Shareholders(2) 37,182 31,483
Per Share
Free cash flow 0.413 0.261
Dividends declared to Shareholders(2) 0.270 0.270
Energy Volumes
Electricity sales volume (megawatt hours) 1,490,615 978,036
(1) See "Non-IFRS measures" for a detailed description.
(2) Total dividends to Common and Class A Shareholders represent cash dividends plus share dividends issued as part of Northland's dividend reinvestment plan.

First Quarter Results

Northland's consolidated sales, adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") and operating income for the three months ending March 31, 2014 were significantly higher than the same period of 2013. Major variances at Northland facilities compared to the first quarter of 2013 are discussed below.

Adjusted EBITDA

Northland's consolidated adjusted EBITDA for the first quarter of 2014 of $102.1 million was $47.5 million or 87% higher than the prior year primarily due to: (i) a $36.1 million contribution from North Battleford and the Ground-mounted Solar Phase I and II projects, which were not operational at this time last year; (ii) $11.7 million from Northland's existing thermal and wind facilities, largely due to favourable wind conditions and $9.5 million of natural gas resale profits; and (iii) $5.3 million of additional performance and management fees from Kirkland Lake and Cochrane (Northland was not entitled to performance fees from Cochrane at this time last year). Offsetting these favourable variances were: (i) a $5.2 million write- off of deferred development costs; and (ii) $0.4 million of higher corporate costs.

Free Cash Flow, Payout Ratio and Dividends to Shareholders

Free cash flow for the quarter of $56.8 million was $26.3 million (87%) higher than the same period in 2013; significant factors increasing and decreasing free cash flow in 2014 are described below.

Factors increasing free cash flow in the first quarter of 2014 over the same quarter of 2013:

  • $47.9 million higher adjusted EBITDA from Northland's operating facilities;
  • $6 million increase in adjusted EBITDA generated from Northland's managed and other facilities;
  • $0.3 million positive variance associated with Kingston and North Battleford payments to General Electric related to their gas turbine maintenance contracts; and
  • $0.7 million favourable increase in non-cash items.

Factors decreasing free cash flow in the first quarter of 2014 over the same quarter of 2013 were:

  • $13.8 million net interest expense increase primarily due to the inclusion of North Battleford and Ground-mounted Solar Phase I and II debt;
  • $6.7 million increase in scheduled debt repayments as a result of including North Battleford and Ground-mounted Solar Phase I projects;
  • $5.2 million write-off of deferred development costs related to Northland's Kabinakagami project;
  • $1 million increase in funds set aside for future major maintenance;
  • $0.7 million decrease in other income;
  • $0.4 million increase in corporate general and administration costs;
  • $0.6 million negative variance related to funds that were set aside in 2012 pending the closing of the British Columbia wind development assets; and
  • $0.2 million increase in current income taxes and other miscellaneous items.

For the three months ending March 31, 2014, Northland's dividend payout ratio was 49% of free cash flow or 63% if all dividends were paid out in cash (i.e. excluding the effect of dividends reinvested through the Dividend Reinvestment Plan (DRIP)) compared to 75% and 103%, respectively in 2013.

Net income

Net income for the first quarter of 2014 at $28.6 million exceeded the prior year due to higher adjusted EBITDA, partially offset by higher finance costs, a fair value loss on derivative contracts and higher current and deferred income taxes.

Outlook

During the first three months of 2014 and through the date of this release, Northland continued to execute its strategy of expanding its earlier-stage development pipeline in its targeted traditional Canadian market, as well as increased activity in other jurisdictions that meet the Company's investment criteria. A number of opportunities in these jurisdictions have been identified and are in addition to several projects Northland already has under development. Northland's approach continues to be one of ensuring a balance between advancing development opportunities that meet the Company's investment criteria, while prudently managing the Company's cost exposure to earlier-stage projects.

In 2014, management continues to expect Northland to generate adjusted EBITDA of approximately $345 to $355 million.

Management continues to expect adjusted EBITDA of $380 to $400 million in 2015 based on the current completion schedules for Northland's projects with power contracts.

Northland's 2014 dividend payments, on a total dividend basis, are expected to exceed free cash flow due largely to the level of spending on growth initiatives and payments of dividends and interest on capital raised for construction projects for which corresponding cash flows will not be received until the projects for which the capital is raised are completed. For 2014, management continues to expect cash dividends to be 75-85% of free cash flow, including the impact of reinvested dividends through the DRIP, and 105-120% of free cash flow excluding the impact of reinvested dividends through the DRIP. Prior to its investment in Project Gemini, management expected the dividend payout ratio to drop below 100% in 2014 on a total dividend basis, based on the successful conclusion of a period of significant growth and capital expenditures for Northland. Due to the significant capital costs for Northland's investment in Project Gemini, additional corporate capital has been raised in 2014 to fund the project, and as a result the payout ratio may exceed 100% until Project Gemini is completed in 2017. Northland has sufficient liquidity to bridge the payout of the current dividend in excess of free cash flow during this period. Management expects the payout ratio during Project Gemini's construction to be significantly lower than during the growth period experienced by Northland from 2009 to 2013.

Northland's Board and management are committed to maintaining the current monthly dividend of $0.09 per share ($1.08 per share on an annual basis). Northland's management and Board have anticipated the impact of growth on the payout ratio and are confident that Northland has adequate access to funds to meet its dividend commitment, including operating cash flows, cash and cash equivalents on hand and, if necessary, use of its line of credit or external financing. Management expects to continue its DRIP to provide an additional source of liquidity.

Non-IFRS Measures

This press release includes references to Northland's free cash flow and adjusted EBITDA which are not measures prescribed by International Financial Reporting Standards (IFRS). Free cash flow and adjusted EBITDA, as presented, may not be comparable to similar measures presented by other companies. These measures should not be considered alternatives to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Rather, these measures are provided to complement IFRS measures in the analysis of Northland's results of operations from management's perspective. Management believes that free cash flow and adjusted EBITDA are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations.

Earnings Conference Call

Northland will hold an earnings conference call on May 13th at 10:00 a.m. EDT to discuss its first quarter financial results. John Brace, Northland's Chief Executive Officer and Paul Bradley, Northland's Chief Financial Officer will discuss the financial results and company developments before opening the call to questions from analysts and members of the media.

Conference call details are as follows:
Date: Tuesday, May 13, 2014
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-732-6870 or Local: 416-981-9007

For those unable to attend the live call, an audio recording will be available on Northland's website at (www.northlandpower.ca) from the afternoon of May 13 until May 27, 2014.

ABOUT NORTHLAND

Northland is an independent power producer founded in 1987, and publicly traded since 1997. Northland develops, builds, owns and operates facilities that produce 'clean' (natural gas) and 'green' (wind, solar, and hydro) energy, providing sustainable long-term value to shareholders, stakeholders, and host communities.

The company owns or has a net economic interest in 1,379 MW of operating generating capacity, with an additional 50 MW of generating capacity currently in construction, and another 750 MW (439 MW net to Northland) of wind and solar projects with awarded power contracts. The above includes Northland's majority equity stake in Gemini, a 600 MW (360 MW net to Northland) of offshore wind project in the North Sea. Northland's cash flows are diversified over five geographically separate regions and regulatory jurisdictions in Canada, Europe and the United States.

Northland's common shares, Series 1 and Series 3 preferred shares and convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.C, NPI.DB.A and NPI.DB.B, respectively.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements which are provided for the purpose of presenting information about management's current expectations and plans. Readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects," "anticipates," "plans," "believes," "estimates," "intends," "targets," "projects," "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could." These statements may include, without limitation, statements regarding plans for raising capital. These statements are based upon certain material factors or assumptions that were applied in developing the forward-looking statements, including management's current plans, its perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. Although these forward-looking statements are based upon management's current reasonable expectations and assumptions, they are subject to numerous risks and uncertainties. Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, operational risks, foreign exchange rates, regulatory risks, and the variability of revenues from generating facilities powered by intermittent renewable resources and the other factors described in the "Risks and Uncertainties" section of Northland's 2013 Annual Report and Annual Information Form, both of which can be found at www.sedar.com under Northland's profile and on Northland's website www.northlandpower.ca. Northland's actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur.

The forward-looking statements contained in this release are based on assumptions that were considered reasonable on May 12, 2014. Other than as specifically required by law, Northland undertakes no obligation to update any forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Contact Information